NEW YORK (CNNfn) - Online health care company Healtheon/WebMD Corp. agreed Monday to buy rival CareInsite Inc. and its parent company, software maker Medical Manager Corp., in an all-stock deal worth an estimated $4.7 billion.
News of the deal sent Medical Manager stock soaring. CareInsite and Healtheon shares also jumped.
Atlanta-based Healtheon/WebMD (HLTH: Research, Estimates), which has been rapidly expanding its reach into the online health sector with a string of recent acquisitions, will gain access to Medical Manager's (MMGR: Research, Estimates) administrative network representing about 185,000 physicians. Healtheon's acquisition of CareInsite (CARI: Research, Estimates), which tries to link doctors and patients over the Internet, helps neutralize a competitor in the online health services business.
"I think it certainly creates the dominant company in the space," said Caren Taylor, an analyst at E*Offering who specializes in online health companies. She said the acquisitions will help improve Healtheon's technology and foils other potential bidders who may have wanted to acquire CareInsite as part of an online health expansion strategy.
Healtheon said the deal will allow the company to offer more services, including allowing doctors to review patients' data over the Internet, and allowing patients to schedule appointments and see lab results online.
"The merger will give us technology to enable consumers to interact with their physician and health plan," Jeff Arnold, CEO of Healtheon/WebMD, said in a conference call announcing the deal.
(CNN.com has a content arrangement with Healtheon/WebMD and parent company Time Warner Inc. (TWX: Research, Estimates) holds a small equity stake in the company.)
Both Medical Manager and CareInsite are based in Elmwood, Park, N.J.
Healtheon said it would maintain CareInsite's strategic partnership with clinical information services company Cerner Corp. (CERN: Research, Estimates). Kansas City, Mo.-based Cerner will become a major shareholder of the new company, owning more than 17 million Healtheon/WebMD shares.
Under terms of the pact, Healtheon will pay 1.65 common shares for each share of Medical Manager. The deal values Medical Manager shares at about $90.75 based on Friday's closing stock prices, a 40 percent premium.
Healtheon will offer 1.3 shares of its stock for the 31 percent of CareInsite not owned by Medical Manager, valuing CareInsite stock at about $71.50 -- a 5 percent premium over Friday's close.

The deal is worth more than $4.7 billion based on Friday's closing stock prices.
CareInsite, which went public last summer, signed a deal last fall with America Online Inc. (AOL: Research, Estimates) to develop a Web network for physicians and consumers. But the company has been seen as a distant competitor to Healtheon/WebMD, whose recent activities include a $2.5 billion pact to buy the claims-processing business of Quintiles Transnational Corp. (QTRN: Research, Estimates), and a nearly $1 billion private placement by Janus Capital Corp.'s mutual funds.
"This is not an exit strategy," said Martin Wygod, chairman of Medical Manager and CareInsite. The deal represents a "commitment to go forward, to bring down the costs of health care," he said.
Wygod, who formerly ran Medco pharmacy benefits service now owned by Merck & Co. (MRK: Research, Estimates), will co-chair Healtheon/WebMD, along with Healtheon chief operating officer Mike Long.

In midday trading, Medical Manager stock surged 22-1/8 to 87-1/8 - a gain of about 35 percent. CareInsite rose 4-3/8 to 72-1/4, and Healtheon increased 2-1/2 to 57-1/2. Stock in Cerner rose 3-13/16 to 28-9/16.
The deal is expected to close by the middle of the year, pending shareholder and regulatory approval.